Kroger's Net Income Jumps 38%

CINCINNATI — Kroger Co., the nation's largest traditional grocery chain, said Tuesday that its fiscal second-quarter profit rose 38%, boosted by a rebound in Southern California stores after a costly four-month strike that ended last year.

For the quarter ended Aug. 13, Kroger reported earnings of $196.5 million, or 27 cents a share, compared with $142.4 million, or 19 cents, a year earlier.

Sales rose 6.8% to $13.9 billion. The company said it was seeing "sustained improvement" at its Ralphs and Food 4 Less supermarkets in Southern California.

The results matched Wall Street's expectations, according to Thomson Financial.

Kroger shares fell 25 cents to $19.97 after trading earlier in the day at a 52-week high of $20.73.

The retailer also reaffirmed its forecast of $1.24 in earnings per share for the full year, driven by continued improvement in Southern California supermarkets, improved results from other chains, lower interest expense and fewer shares outstanding because of stock buybacks.

Analysts' consensus estimate for 2005 is $1.28 a share.

Performance in the first half of 2005 shows that Kroger's focus on customer service is setting its stores apart, said Chairman and Chief Executive David B. Dillon.

"We have been able to use cost reductions and productivity improvements to reinvest in our business and improve our customers' shopping experiences," he said in a statement. "We also recognize that a lot of opportunities remain for growing our business."

Dillon said it was too soon to tell how the Hurricane Katrina disaster would affect business.

The company has a small number of stores in Mississippi and Louisiana, but none in the New Orleans area. Some stores along the Gulf Coast closed temporarily because of the storm and power outages, Kroger said.

Company executives said sales increased in some stores around the storm area, boosted in some cases by evacuees moving into the area. However, costs are up because of higher fuel prices and shipping disruptions, such as the temporary diversion of banana shipments away from the Port of New Orleans, which reopened Tuesday.

The Cincinnati-based company operates 2,515 supermarkets and department stores in 32 states under two dozen local banners.